Uttam Kumar Sec-A Dividend Policy Linear Technology
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Transcript of Uttam Kumar Sec-A Dividend Policy Linear Technology
Exhibit 2 Selected Linear Financial Data in Millions of Dollars (Except Share Data), 19922003June Fiscal Year 1992 1993 1994 1995 1996 1997 1998 1999 2000
Income Statement
Sales -Cost of Goods Sold -Research and Development Expense -Other Expenses Income Before Taxes -GAAP Income Taxes Net Income Common Shares Outstanding Earnings Per Share Dividends Paid Preferred Dividends Paid - Common
119.4 49.5 12.3 19.1 38.5 13.5 25 280.2 $0.09
150.9 57 14.8 23.3 55.7 19.3 36.4 285.4 $0.13
200.5 67.6 18.4 28 86.5 29.7 56.8 290.5 $0.20
265 83.3 23.9 29.4 128.5 43.8 84.7 294.3 $0.29
377.8 106.8 31.1 36 203.9 69.9 134 298.6 $0.45
379.3 109.8 35.4 29.6 204.5 70.2 134.4 303.8 $0.44
484.8 137.8 46.2 29.6 271.3 90.4 180.9 307.3 $0.59
506.7 139.8 54.7 26.5 285.7 91.4 194.3 307.5 $0.63
705.9 179 78.3 31.4 417.3 129.4 287.9 315.2 $0.91
0.0 0.0
0.0 5.3
0.0 8.3
0.0 9.8
0.0 11.9
0.0 15.0
0.0 18.3
0.0 22.1
0.0 28.0
Share Price, Fiscal Year Close
$2.36
$3.61
$5.50
$8.25
$7.50
$12.94
$15.08
$33.63
$63.94
Dividend/Share Dividend Yield Dividend Payout Ratio
0 0 0
0.02 0.03 0.03 0.04 0.049 0.06 0.072 0.0887 0.01 0.01 0 0.01 0.004 0.004 0.002 0.0014 0.15 0.15 0.12 0.09 0.111 0.101 0.114 0.0971
hare Data), 199220032001 2002 2003a
972.6 231.1 102.5 28.4 610.7 183.2 427.5 318.9 $1.34
512.3 144.7 79.8 9.4 278.4 80.7 197.6 316.2 $0.63
440.8 114.6 67 18.9 240.3 69.7 170.6 312.4 $0.55
Payout Policy: 1. The company started offering dividends right from 1994 and always want to send a message that investing in Linear Technology is not as risky as investing in any other technology company as it pays dividend on regular intervals and provide constant flow of income to shareholders (refer Pink colored cells in the adjacent table). 2. Its idea is to offer dividends so as to attract new set of investors who add diversity to the shareholders group. 3. Even though the company faced decline in sales in 2002 due to slowdown, the company still increased the dividend per share and exhibited that the company is in sound position. 4. The payout ratio reached to 25%-30%
0.0 41.2
0.0 54.0
0.0 47.0
$44.22
$31.43
$30.87
0.1291 0.1708 0.1505 0.0029 0.0054 0.0049 0.0963 0.2733 0.2756
5. Since the interest rates for investment is drastically reduced in the market in recent years, the company started using its excess cash flows for buying back the shares.
Financing Needs: 1. The company is having excess cash flows to the tune of $1.5 Billion. 2. It is maintaining postive cash flows due to its variable cost structure and low capital investment for fabrication units ($200 million), moderate R&D investment ($102 million) etc. 3. Company is not interested in going for acquisitions. Owing to above reasons, the company can finance any of its expenditure with its internal cash flows and short term investments and need not depend on external institutes for financing.
Question 2 Tax Consequences of Dividends (All figures are in $Million) Outstanding Shares New Total Dividend Total Tax Paid Dividend Paid 312.4 312.4 312.4 312.4 312.4 0.04 0.045 0.05 0.055 0.06 12.496 14.058 15.62 17.182 18.744 1.8744 2.1087 2.343 2.5773 2.8116
June Fiscal Year
1992
1993
1994
1995
1996
Common Shares Outstanding(millions)Dividend/Share Total Dividend Paid ($ million) Total Tax Paid on dividend($ million)@ 38.6% Tax paid @15% Savings
280.20 0
285.360.018611578 5.311
294.32 298.64 0.028463233 0.033419 0.0397178.268 9.836 11.861
290.48
0 0 0
2.050046 0.79665 1.253396
3.191448 1.2402 1.951248
3.796696 1.4754 2.321296
4.578346 1.77915 2.799196
By not returning cash to its shareholders, Linear Technology is saving the double tax which is levied on dividend amounts paid to shareholders. Even though the company has to pay the corporate tax on EBIT, it saves the personal tax levied to shareholders on dividend amount. We varied the dividend in a given range and found that the tax outflow saved is around $1.87 -$2.8 millions. This tax can be saved by keeping the cash inside the firm or by exercising a repurchase option which is used to offset the dilution of shareholding through employee stock options..
1997
1998
1999
2000
2001
2002
2003a
(in Millions)
303.84 307.28 0.049243 0.05960714.962 18.316
307.46 315.17 318.91 316.15 312.406 0.07183 0.088682 0.129077 0.170821 0.15050922.085 27.95 41.164 54.005 47.02
5.775332 2.2443 3.531032
7.069976 2.7474 4.322576
8.52481 3.31275 5.21206
10.7887 4.1925 6.5962
15.889304 6.1746 9.714704
20.84593 8.10075 12.74518
18.14972 7.053 11.09672
100.660308 39.1167 61.543608
Exhibit 3 Linear Payout Policy, 1992-2003 Market Reaction Fiscal Stock Re- Dividends Quart Purchase Per Sharea er ($M) ($) Stock Splits (Date) Share Pricea ($) Sharesa (M) LLTC SOX Earningsb Returnc(%) Returnc(%)
Dividendb
Q1 93 Q2 93 Q3 93 Q4 93 Q1 94 Q2 94 Q3 94 Q4 94 Q1 95 Q2 95 Q3 95 Q4 95 Q1 96 Q2 96 Q3 96 Q4 96 Q1 97 Q2 97 0.5 0.8 6.1 1.2
0.00000 0.00625 0.00625 0.00625 0.00625 0.00750 0.00750 0.00750 0.00750 0.00875 0.00875 0.00875 0.01000 0.01000 0.01000 0.01000 0.01250 0.01250 2:1(8/11) 2:1 (11/3)
2.70 3.19 3.16 3.61 4.28 4.84 5.28 5.50 5.54 6.19 7.00 8.25 10.38 9.81 10.44 7.50 9.22 10.97
281.3 283.1 283.4 285.4 294.1 287.7 289.6 290.5 290.0 290.5 293.2 294.3 295.2 296.3 299.3 298.6 297.5 299.5
13-Oct
14-Oct 12-Jan 13-Apr 20-Jul
-1.6 -1 11 -1.2 11.7 0.6 -4.1 2.2 4.7 1.8 11.7 14.3 10.6 -14.3 -1.4 -11 11.4
12-Oct
12-Oct 19-Jan 19-Apr
17-Oct
17-Oct 18-Jan 18-Apr 27-Jul 17-Oct 17-Jan 16-Apr
0.5 -5 0.2 7.3 3.6 4.6 -5.8 -1.3 2.3
25-Jul
3.5 5.0 14.4 11.6
23-Jul
23-Jul 16-Oct 15-Jan
Q3 97 Q4 97 Q1 98 Q2 98 Q3 98 Q4 98 Q1 99 Q2 99 Q3 99 Q4 99 Q1 00 Q2 00 Q3 00 Q4 00 Q1 01 Q2 01 Q3 01 Q4 01 Q1 02 Q2 02 Q3 02
50.5 5.9 100.0 8.8
52.3 11.0 6.5 114.8 3.0 37.3
0.01250 0.01250 0.01500 0.01500 0.01500 0.01500 0.01750 0.01750 0.01750 0.02000 0.02000 0.02000 0.02000 0.03000 0.03000 0.03000 0.03000 0.04000 0.04000 0.04000 0.04000
2:1(1/29)
2:1(3/6)
11.06 12.94 17.19 14.41 17.25 15.08 12.50 22.39 25.63 33.63 29.39 35.78 55.00 63.94 64.75 46.25 41.06 44.22 32.80 39.04 44.22
301.6 303.8 306.0 303.0 306.0 307.3 300.7 301.3 306.1 307.5 308.5 311.1 313.1 315.2 316.6 316.0 317.8 318.9 316.3 317.2 317.1
23-Jul
21-Jul
13-Apr
18-Apr
17-Apr
16-Apr
16-Apr 22-Jul 14-Oct 13-Jan 14-Apr 21-Jul 13-Oct 12-Jan 13-Apr 20-Jul 12-Oct 18-Jan 18-Apr 25-Jul 17-Oct 16-Jan 17-Apr 24-Jul 16-Oct 15-Jan 17-Apr
-2.3 8.3 5.4 6.6 13.3 -15.5 11.9 7.9 0.3 -10.7 -3.5 6.1 15.2 -2 -18.3 8.8 8.5 -11.3 -10.1 -1.1 4.9
-0.7 3.9 -4 6.4 6.8 -5 9 3.1 -6.2 -6.4 -1.4 -0.5 13.5 -4.5 -14.6 1 7.2 -3.6 -9.5 -6.5 3.7
Q4 02 Q1 03 Q2 03
66.5 125.0 1.5
0.05000 0.05000 0.05000
31.43 20.72 25.72
316.2 311.8 313.4
23-Jul 15-Oct 14-Jan
0.5 4.3 -2.4
-2.9 -0.3 -4.2
Q3 03a b
39.2
0.05000
30.87
312.4
Adjusted for splits. Announcement date. The quarterly earnings announcement date for Q4 1994 is not available from Compustat. c Return on the day before, the day of, and the day after the earnings announcement. The SOX index begins in October 1994. Source: Adapted from Compustat, the Center for Research on Security Prices, Datastream
Question 3 Dividend Repurchase
Cash paid as dividend Tax paid Dividend per share Dividend received by shareholder
1565.2 234.78 5.0102433 4.2587068
Cash used for repurchase No. of shares repurchased
New Share Price
26.61
No. of outstanding shares Net Income (for 2002) Net Income (for 2003 at 3% growth) Net Income (for 2003 at 7% growth)
Change in value of the firm
1330.42
EPS (for 2003 at 3% growth) EPS (for 2003 at 7% growth) P/E (for 2003 as referenece)
Value of the firm reduced by $1330.42 Million in above case. Earnings and EPS will remain same.
New Price of Share (for 2003 at 3% growth) New Price of Share (for 2007 at 3% growth) Change in Value of the firm (for 2003 at 3% growth) Change in Value of the firm (for 2003 at 7% growth)
Why do firms pay dividends? 1) Dividends as well as re-purchases absorb excess cash flows and thus reduce agency costs. 2) Dividend announcements lead to an initial increase in stock price. Investors with small shareholdings could possibly gain from this. However large shareholders will welcome the announcement depending on the tax rate which they are paying. 3) Some investors prefer current income, which is derived mainly from dividends. 4) Dividend is a sign of good performance of the firm. The firm signals the investors that it is having a healthy cash flows and capable of generating revenues in the near future. 5) Many European investment firms and pension funds prefer to invest in high-dividend firms only.
The value of the firm appreciates by $3.44 and $3.58 billion due to appreciation of sha prices. The share price would appreciate. Earnings would remain same. EPS would increase.
1565.2 50.70294785
Calculation Steps: 1. The sales figure for the first half of 2003 was $287million and that for the 3 quarters of 2003 is $440.8million, thus we have the sales for the 3rd quarter of 2003 as $440.8m-$287m=$153.8m. 2. If we have a 3% growth in the sales for the 4th quarter then the sales will be 1.03*153.8=$158.4million. Thus we have the total sales for the year 2003 as $440.8m+$158.4m=$599.2million. 3. Similarly for a 7% growth we get the yearly sales as $604.5million. Now the net Income to sales ratio is 0.387, this will remain a constant for the next quarter also as both the sales and the profit increases at the same rate. Thus with the new sales values we find that the new Net Incomes are $231.9m and $233.95 for 3% and 7% growth respectively. 4. Thus from these figures the EPS can be calculated. We find that the net price of the share increases drastically when we repurchase the shares, this is primarily due to the fact that when the shares are repurchased, its an indication to the market that the shares are undervalued and the market takes this signal and the stocks become bullish after that, thus increasing the value of the firm.
261.7 197.6 231.9 233.95
0.886139137 0.893972622 56.534
50.09698998 50.53984824
3466.4466 3582.3413
m appreciates by $3.44 e to appreciation of share ice would appreciate. ain same. EPS would
Exhibit 11 Data on Companies in the Semiconductor Index (SOX) in Millions of Dollars (Except Share Data), 2002Share Ticker Pricea Shares (M) Net Income Cash Flowb Cashc Long-Term Debt
Company
Advanced Micro Devices Altera Applied Materials Broadcom Intel Kla-Tencor Linear Technology Lsi Logic Maxim Integrated Products Micron Technology Motorola National Semiconductor Novellus Systems STMicroelectronicsf Taiwan Semiconductorg Teradyne Texas Instruments Xilinx
AMD ALTR AMAT BRCM INTC KLAC LLTC LSI MXIM MU MOT NSM NVLS STM TSM TER TXN XLNX
6.18 13.54 12.58 12.35 16.28 35.94 30.87 4.52 36.12 8.14 8.26 17.04 27.27 18.90 6.84 11.64 16.37 23.41
344.5 383.5 1648.0 277.8 6575.0 189.8 316.2 375.1 320.1 602.9 2315.3 183.8 149.1 887.5 3703.2 183.2 1730.6 339.0
-1303.0 91.3 269.0 -2236.6 3117.0 216.2 197.6 -292.4 259.2 -907.0 -2485.0 -33.3 22.9 429.0 413.8 -718.5 -344.0 125.7
-794.1 1037.7 237.8 942.7 75.1 4929.5 -144.4 502.7 4426.0 12587.0 215.4 673.3 1552.0 115.1 990.0 313.4 765.5 -181.8 985.7 732.0 6566.0 49.8 915.4 188.1 1019.7 718.0 2564.0 951.3 1113.0 -80.6 325.4 1190.0 3012.0 299.0 675.6
1779.8 0.0 573.9 1.2 929.0 0.0 0.0 1241.2 0.0 360.8 7674.0 19.9 0.0 2797.0 1701.7 450.6 833.0 0.0
a
Share price on March 31, 2003. Compustat operating cash flow (Item 308) less capital expenditures (Item 128).
b c
Cash and short-term investments. Special (non-recurring) dividend.
d e f
Micron discontinued its dividend in 1996.
STMicroelectronics is an American Depository Receipt (ADR), based in France. Taiwan Semiconductor is an ADR, based in Taiwan.
g
Source: Adapted from Compustat, Center for Research on Security Prices
(Except Share Data), 2002Dividend Stock Re- Initiation Dividends purchases Date
EPS
P/E
0.0 0.0 0.0 0.0 533.0 0.0 54.0 0.0 0.0 0.0 364.0 0.0 0.0 36.0 0.0 0.0 147.0 0.0
0.0 Apr-95d 139.5 125.0 0.0 4014.0 Sep-92 123.2 221.6 Oct-92 0.0 864.0 2-Oct 0.0 Sep-91e 0.0 Nov-46 0.0 78.2 115.0 May-99 0.0 0.0 370.0 26-Apr 60.8
-3.782293179 0.238070404 0.163228155 -8.051115911 0.474068441 1.139093783 0.624920936 -0.77952546 0.809746954 -1.504395422 -1.073295037 -0.18117519 0.153588196 0.483380282 0.111741197 -3.921943231 -0.198774991 0.37079646
-1.63393 56.87393 77.07004 -1.53395 34.34103 31.5514 49.39825 -5.7984 44.60653 -5.41081 -7.69593 -94.0526 177.5527 39.09965 61.21288 -2.96792 -82.3544 63.13437
63.48408